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REYKJAVIK, Iceland -- The financial crisis that brought Iceland to the brink of bankruptcy has postponed this volcanic island's ambitious dream of ditching fossil fuels and transforming itself into the world's first hydrogen-based economy.

Proponents of a government-sanctioned scheme to derive hydrogen from water and use it to power all ground transportation as well as Iceland's large fishing fleet admit that their plans have been set back at least 10 years and may have to be altered to allow for electric cars.

Ten years ago, Iceland started experimenting with hydrogen applications in transportation. Three city buses ran solely on hydrogen in Reykjavik for three years. As many as 16 passenger vehicles ran on hydrogen in the city. Twelve remain in operation today, including some that tourists can rent at the local Hertz office and refuel at a Shell gasoline station that has been modified to also dispense hydrogen.

The Blue Lagoon Power Plant has an unlimited source of clean fuel, the geothermal heat that underlies much of Iceland. Experts say only 1 percent of the resource has been tapped.

But after a promising start, Iceland's hydrogen experiment has slowed to a crawl.

"We would like to have a larger hydrogen car fleet in the next 12 months, but it's a question of cost. It depends on car manufacturers," said Jon Bjorn Skulason, general manager of Icelandic New Energy, a joint venture of Daimler, Shell, Norsk Hydro, Iceland National Power Co., Reykjavik Energy and the University of Iceland.

"We're following the lead of the car manufacturers. We are a testing ground, but it's not entirely up to us. All the manufacturers are looking at electromobility and we see strong activity at car companies in Germany and Japan. U.S. companies have been a bit distracted by the problems at GM and Chrysler."

Iceland had hoped to complete its switch from fossil fuels to hydrogen by 2040, but now that target has been moved by 10 years.

"In the past years, teams from all the big car manufacturing companies visited us and said they intended to market fuel cell-powered hydrogen cars shortly after 2010," said Bragi Arnason, a professor of chemistry at the University of Iceland in Reykjavik. "Of course, because of the current world crisis, there will be a delay."

The long quest of 'Professor Hydrogen'

Arnason, 74, is nicknamed "Professor Hydrogen" because he has dedicated his life to his dream of powering Iceland with hydrogen. In 1976, Arnason realized that despite abundant renewable energy sources, Iceland was importing more than 40 percent of the energy it consumed as fossil fuel. He began looking for a replacement in synthetic gasoline, methanol and ammonia, finally settling on hydrogen because it was cheaper and easier to produce.

In fact, Iceland has been producing hydrogen on a large scale from water by electrolysis for 50 years, making 2,000 tons per year for fertilizers. To power the country's whole transportation and fishing fleet would require 80,000 to 90,000 tons of hydrogen per year, Skulason said. It would have the added benefit of cutting Iceland's carbon dioxide emissions by 66 percent.

Under the Kyoto Protocol, Iceland is allowed to increase its emissions by 10 percent from 1990 levels. But the country's power-intensive aluminum industry, which is expected to expand, will force it to exceed that goal. Since indoor heating (as well as heating of the streets and sidewalks of Reykjavik, which stay ice-free in the winter) is already geothermal and all electricity production is either hydro or geothermal, the country's best shot to reduce its carbon emissions is curbing fossil fuel usage in fishing and transportation.

Taken together, these sectors make up only 28 percent of Iceland's energy consumption -- about the same as industrial activity -- compared to 40 percent for space heating.

In 1998, the government signed an official document proclaiming its desire to transform Iceland into a hydrogen-powered society. Since Iceland has transportation systems and standards similar to those of all other developed nations, hydrogen supporters here hoped that success in this tiny country under severe weather conditions could be replicated elsewhere in a more forgiving climate.

Financial bummer for one of the world's 'happiest' countries

Once ranked the fourth-happiest country in the world, Icelanders thought they could afford such lofty ideals. Then their three main banks collapsed last fall, taking the economy down with them and pushing unemployment from 1 percent to 9 percent today in the North Atlantic island of just 300,000 inhabitants. The Icelandic crown lost half its value, and household consumption is expected to shrink by a quarter, as inflation hit a peak of nearly 19 percent in January.

The original idea was to use hydrogen to power one of Iceland’s main economic drivers, its fishing fleet. But rising costs and an economic nosedive have limited the conversion to a single boat, the Elding, which takes tourists whale-watching. Photo courtesy of Icelandic New Energy.

The three original hydrogen buses did not lead to a wholesale transformation of the Reykjavik fleet. Instead, now all buses run on conventional fuels. "The bus project has now been terminated; we are waiting for the next generation to be built," Arnason said.

Storing hydrogen in a small vehicle is tricky, so buses were prime candidates for the Icelandic experiment. Enough hydrogen can be stored on board as pressurized gas to operate the buses throughout the day, refueling in less than seven minutes.

For private cars, the storage problem makes it difficult to engineer a car that will travel a long distance without refueling. The Icelanders have experimented with Ford, Mercedes and modified Toyota Prius hydrogen cars.

The cold winter caused trouble for the Toyotas, which did not heat rapidly upon starting and had water leaking into the engine oil. Two engine heaters were installed to fix the problem, but test drivers complained about the limited range the Prius had on hydrogen -- only 100 miles.

The Mercedes fuel cell A-Class exceeded all expectations and performed well in Iceland's harsh climate, according to Icelandic New Energy. Two A-Class vehicles have been driven thousands of miles without needing any service. They proved to have a range of 225 miles at optimum hydrogen pressure.

Fuel cell-powered Ford Focuses and Explorers were also tested, the former with a range of 150-200 miles per tank and the latter with a range of 350 miles -- the longest-range hydrogen vehicle to date. Skulason himself drives one of the Explorers to work every day. "It would be very difficult to go back to a gasoline car if I ever have to," he said.

A whale-watching boat gets hydrogen fuel, but not the fleet

If everyone drove a car like Skulason's, Iceland would only need 15 hydrogen fueling stations, Arnason said. "This shows how easy it is to start introducing the hydrogen economy in Iceland if we could purchase hydrogen-powered cars. If our vision becomes reality, there would be no more heavy trucks on the roads transporting fossil fuel all around the country," he said, acknowledging that he likely won't be around to see that day.

Discovered in the eighth century by Irish monks, Iceland was first colonized by Norway, then taken over by Denmark in the 14th century. It became fully independent in 1944, although Denmark's influence can still be felt in Reykjavik and many Icelanders still can speak Danish as a second language.

The fishing industry has been Iceland's traditional economic base. Almost all of the fish caught by the country's 3,000 trawlers is exported, accounting for 37 percent of Iceland's overall exports last year, second only to the aluminum industry, which represented 52 percent of exports, according to Statistics Iceland.

Iceland's fishing boats are sometimes at sea for up to six weeks and need to store large amounts of fuel. Pressurized hydrogen won't work here, while liquid hydrogen would be prohibitively expensive. According to Arnason, the only near-term solution is to store hydrogen bound in methanol.

"Technically, it is possible to produce sufficient methanol in Iceland to power the entire fishing fleet by combining electrolytically produced hydrogen and carbon oxides currently emitted from the metals industry," Arnason said. "This could reduce the greenhouse gas emission from the fishing sector to about 45 percent of the present level."

But for now, the only vessel running on hydrogen is a whale-watching boat, the Elding. Its main engine still uses oil, but when the boat shuts it down for tourists to observe the whales without disturbing them, the auxiliary engine runs on hydrogen to produce the electricity needed to keep other systems running.

Electric cars may now come first, despite fuel cell potential

Many tourists know Iceland especially for the warm, sulfurous waters of the Blue Lagoon near the airport. Most don't know, though, that the Blue Lagoon also fuels a power plant, as do numerous hot springs dotting this island.

On paper, at least, Iceland is still paradise for renewable energy enthusiasts. It has a geothermal potential of 20 trillion watt-hours (TWh) per year, of which only 1 percent has been harnessed, and a hydro energy potential of 30 TWh per year, of which only 15 percent has been harnessed.

Despite recent setbacks, Skulason and Arnason dream of a day when the huge amounts of renewable electricity available to Icelanders will be used to produce hydrogen that will propel their way of life into the future.

"The goal is to have a fully hydrogen-powered economy by 2050, including the marine fleet," Skulason said. "The vehicle fleet could be done much faster. We only have 200,000 cars in the country, so it's easy to change them, but it depends on cost and availability."

Skulason admitted that some Icelanders may choose electric cars over hydrogen cars.

"Hydrogen won't be the only fuel; part of the fleet will be electric. But hydrogen will fit in the portfolio," he said. "Electric cars don't have the range yet. Plus, we need four-wheel drive cars in Iceland because we have some pretty bad winters. It's not something electric vehicles can fulfill 100 percent. I'm not sure battery technology will go beyond 150 miles."

Another issue is the charging time of up to eight hours now necessary for batteries used in electric cars. "Faster charging could be a possibility in the future. We are open-minded, but we don't think a battery-operated electrical engine would be good for the fishing fleet."

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